552. Can I on behalf of the Committee welcome
our witnesses for the second half of this morning's session. We
are delighted to have Michael Jacobs, the General Secretary of
the Fabian Society, Lord Lipsey, Chairman of the Social Market
Foundation and Madsen Pirie, President of the Adam Smith Institute.
I realise we have a general secretary, a chairman and a president,
we have a full house. You have heard the kind of matters we are
interested in exploring. I do not know if any or all of you would
like to say something very briefly by way of introduction.

Mr Jacobs: Thank you for inviting me. I wanted
to address the question of what the public service ethos is. My
understanding is that in much of the deliberations the Committee
has had you have focussed on accountability and motivation. It
seems to me these things are important but there is a third element
which is more important and more defining, and that is what I
would call the "principle of non-exclusion". To me the
defining characteristic of a public service is that it cannot
exclude the citizens whom it serves from the services that it
provides. Those citizens may be everybody or in defined categories.
Within those defined categories you cannot fail anybody, you cannot
exclude people. The market excludes those with ineffective demand.
The market is a model which does exclude. The voluntary sector,
though it may prefer not to exclude, frequently does, either on
the basis of ascription, such as church membership, or simply
through lack of resources. In fact most of the exclusion that
goes on is simply a question of a lack of resources. The public
sector by definition cannot exclude. It does not matter how old
you are, how ill, how mentally ill, how criminal, how homeless,
how unemployed you are you have a right to public services. This
is based on the principle of citizenship. The principle of citizenship,
of the equal worth of every individual and their belonging to
a community, geographically bounded, in which they live, seems
to me to be a fundamental building block of public services. It
leads to the whole edifice of public sector institutions. There
is another way, which is that the public sector or state picks
up all of those people with ineffective demand, and the private
sector handles those people with effective demand. This is, by
and large, the system we have in this country and it is the system
that operates in the United States. It is a possible model. I
disagree with it; I am in favour of the universalist model we
have here, I believe it leads to a very fractured, divided society,
a society in which those who can afford to pay for services get
good services, and inevitably all the pressures of resources tend
towards those with effective demand. Clearly market pressures
are to give good services to people who can afford to pay, but
also political pressures: you undermine the basis of the taxation
system which then pays for the people at the bottom. The basis
of taxation is that the contribution you make goes not only to
others but to yourself. A system which basically provides through
the state, through tax funded services only for people at the
bottom seems to me to inevitably undermine the political sustainability
of that taxation settlement. As in America and a lot of places
you get pressures to keep taxes low, because tax becomes almost
entirely redistributive and that seems to me to be very unfortunate.
There are instrumental reasons for not preferring a society that
is socially fractured. But I am very happy to say that this is
a moral principle too. The conclusion that I think follows from
all this in terms of practical implications is that public services
cannot fail. Public services are, by and large, essential services.
The market frequently fails: firms go out of business, and so
on, and where those are trivial services and there is genuine
competition that is all right for the consumer. Most public services
are natural monopolies with very high barriers to entry and for
most of their users they cannot fail. As long as a service cannot
fail there are limits to the extent of competition you can have
in that system and that seems to me to be a very important building
block in the system, which is why I do not think risk is ever
properly transferred to the private sector. We have seen that
with Railtrack. This is not just in the public sector. You also
get the failure of risk transfer even in private services. Why
is it that we have bailed out from public funds, insurance companies,
pension companies, hedge funds which have gone out of business?
It is because their failure would be catastrophic and when failure
is catastrophic the state cannot allow failure to occur. My view
is that this principle of non-exclusion and the inability to allow
catastrophic failure means we need publicly funded services. I
would also personally argue for largely public ownership of such
services, but I think that is the fundamental principle of citizenship.
(Lord Lipsey) May I first declare an interest in that
I am Chair of iMPOWER, which is a company offering consultancy
services in e-government to local government essentially. I do
have a foot in both public and private sector. May I say how much
I welcome this inquiry, in particular the emphasis on the public
service ethos, it shows the uncanny knack of this Committee to
get a buzz subject of the moment and you have hit the subject
again with this. Thirdly, I have been reviewing briefly the very
interesting evidence you have already taken on this, it is the
old knights and knaves debate. It is fascinating to compare the
evidence of John Edmunds who, like all trade unionists, said he
is all for public service reform but, and when it came down to
it "but" was a great deal larger than public service
reform. Sir Steve Robson said the public sector ethos is a bit
of a fantasy, there is quite a range there. May I say that same
rangeand we started our political life at about the same
time, Chairmanapplied in a swing over my active period
considering these matters. When we went into the 70sI was
a political adviser to the Labour government at the timeit
did not occur to us that public servants could be knaves, it did
not occur to us that there was anything other than the public
service ethos that motivated the public sector, that is why we
never thought of privatisation. We did find our understanding
somewhat changed over the period, indeed in 1979, when the public
service ethos of the council workers in Liverpool led them to
decide not to bury dead bodies in their search for money. That
was a shocking learning experience. Things then swung to the other
extreme that lead to the anti-trade unionism of the Thatcher government.
There was also the import of the public choice theory from the
United States, the theoretical underpinning of the knave theory,
which said all bureaucrats are out for themselves and anybody
working in the public sector was wholly opposed to public good.
That seems about as ridiculous to me as the view we held in the
70s to the exact contrary. I hope we are swinging back to the
middle way which effectively choses from these two extreme positions.
Having said this I rather fear that we are going to swing back
too far. The public sector ethos is on a bit of a roll at the
moment as a result of various bits of happenstance, particularly
the events of Railtrack, which brought out the difficulties of
the direction in which many things are moving and we may, therefore,
be inclined, as a result, to abandon very important parts of the
public sector reform programme and hope again that the public
sector ethos will do the job. It will not, it cannot and we have
to think more creatively, more deeply if we are to find a more
constructive and more effective solution.
(Dr Pirie) I would like to start by saying that I
think there is a public sector ethos, that the motivation to serve
others, even at the expense of personal reward, does exist. I
take the view that this existed in the private sector as well.
Many people working in private services consider it an honour
and a privilege to serve others and want to do so well. Part of
their self-esteem comes from being rewarded accordingly and from
being given the responsibility to do so in an effective way. Part
of the dangers in the public sector is if government uses that
public service ethos as a means of driving down its wage bill
and if it imposes such tight central controls there is no sense
of responsibility lower down and the self-worth and the self-esteem
will be diminished and the quality of service will deteriorate
accordingly.

553. We have some delightfully opposing positions
here, we will see if we can find the third way Gordon Prentice
has spent his life looking for. You are telling us that when you
talk about the state you talk about an anomaly and you think about
how you can break up this anomaly in order to produce what you
think are more sensible outcomes. When Michael Jacobs thinks about
the state he thinks about something which attaches the principle
of citizenship and does not exclude people and cannot fail. These
are diametrically opposed ways of thinking about the things that
we are talking about. Is there any kind of meeting point between
these or not?
(Mr Jacobs) From my own point of view I think we need
to distinguish between the principle of publicly funded, that
is taxpayer funded, and publicly accountable services; and the
various ways they might be internally organised. I would like
to see much more decentralisation of public service organisations.
Decentralisation in two respects. One is that I would like to
see more political decentralisation. The problem of accountability
in many of our public services, and we are talking about a huge
range of different kind of services, is that their political accountability
is national when they are not primarily national services, and
they should not be. National service generates uniformity and
the very curious form of political accountability that we now
have. There was a moment in the first term which expressed this.
You may remember there was a school in Nottingham which was having
problems with a difficult pupil and the teachers, more or less,
went on strike. David Blunkett got drawn into the argument about
what to do about the pupil. It seems to me to be utterly extraordinary
that the Secretary of State for an entire country could be drawn
into an argument about what to do about an individual school.
It reflects a vastly over-centralised, political culture which
says that accountability is ultimately for the Secretary of State.
The Labour Party, I have to say, has now taken us politically
further down this road, more or less saying, we will sort out
public services and that is why you should elect us and judge
us on this next time round. Your seats are dependent on the performance
of thousands of individual units of public servants and services
round the country, over which you have no control, many of which
are not even politically in your control, they are run by local
authorities. This is very, very dangerous politically for you
as politicians to be judged by the performance of these individual
units. It creates a political culture which means you do not have
proper accountability, because political accountability is miles
from the delivery of the services. The first is political accountability.
The second area of decentralisation I would like to see is much
more pluralism in management. I am in favour of having groups
of managers who are in competition for managing different parts
of the public service who, if they fail, will be kicked out, and
if they succeed, will be asked to take over other parts. I would
like to see competition within the public sector, although I do
not think this is primarily about competition, this is about issues
in the private sector.

554. Let us use that as the peg we can have
an argument on, someone could say, that is a cop out, simply to
say that the state monopoly, as long as we decentralise it, will
be all right, it does not meet where people are at. What people
want is state services just to be different in the way that they
operate in relation to them. The argument goes, and you will be
familiar with it, people increasingly expect in all areas of life
to have far more say in choice and responsiveness in how they
access services, yet when they go to the state the state is like
it is. Although I know what you mean when say "the state
cannot fail" in that nice sense but, of course, in most people's
experience the state often does fail in a practical way. Is the
real challenge not to try to get hold of a sense that people can
have far more control over some of these things, far more choice
about what is going on in them. I suspect if you ask people if
they had money how would they educate their children, how would
they provide for their health, how would they do all kinds of
things the answer would not be, I will vote for the state, would
it? It would be, I will opt out of the state if I possibly can.
(Mr Jacobs) Let me respond to that, if are you asking
me directly. Firstly, the experience of most people is not that
they fail. We need to be very, very careful about the assumption
that what we are seeing is massive failure right across public
services. There are very well-publicised failures and they get
well publicised because it is important we know about their failure.
But the idea that most public services are failures is wrong,
I think it is a very dangerous illusion. Good news is never news,
so you do not get news about how public services are doing okay.
I do not think most public services are doing fantastically but
I think most of them are doing okay most of the time. Most of
them are invisible to most of us. I think that is a really dangerous
illusion, I think the reverse is true. I disagree with David Lipsey
completely that public services are on a roll. On the contrary,
I think all of the intellectual debate is now moving towards some
form of private sector involvement, choice, top ups, and so on.
I think we need to be very careful that we do not assume that
everything has so catastrophically failed that we have to reform
the whole thing. Secondly, I think you can have choice and competition
within parts of the public sector. But you will not get a choice
of GPs unless you have enough GPs, similarly with teachers. I
am very happy to talk about choice in the community and in the
public sector, but do not let us think that you can simply introduce
it, in some sense that is an opportunity that you need. There
will be no choice or competition in the public sector, for example
in schools or hospitals, until we have more doctors, nurses and
teachers. In France you have choice because there is oversupply.

555. We need to make the public sector bigger.
(Mr Jacobs) Yes, if you want choice of that type you
have to increase capacity. This is expensive and it takes time.
You have very high barriers of entry, you cannot simply "produce"
an extra doctor. You can produce an extra hairdresser in a high
street immediately, but you cannot produce an extra doctor's surgery.
(Lord Lipsey) I am listening to this dialogue with
increasing fascination. I think we do need more resources but
that does not solve any of the problems we are talking about in
themselves. The French system, whether you think it is a good
one or not, does not offer more choice, it has more resources,
and we should not mix those things up. The issue is that of monopoly
provision, and the way in which we try to weaken the monopoly
provision includes the contestibilities of the service and the
option of people going private. That has severe costs attached
to the break up of the services. Those are often powerful reasons
for going for one of those solutions. In some cases the monopoly
may be correct and the disadvantages are more than outweighed
by the advantages. I am inclined to think that some measure of
the contestibility is generally considered the secret to getting
better public service, it can be contestibility by another public
sector provider.
(Dr Pirie) I think the model of us all as citizens
participating in public services is one we have moved on to. It
has lead to a centrally directed top down organisation in which
the public get the service the system which is able to be provided
at the bottom end. We have moved on from that in which people
are the consumer of public services. We are trying to get a system
which is directed from the bottom. The choices they make will
ultimately determine where the resources are allocated within
that system. The citizen participating organisation is top down
and outdated and inefficient. The consumer model is bottom directed,
efficient and satisfying what people want out of it.

556. Does the consumer model mean ditching equity?
(Dr Pirie) It means giving the consumers what they
would get in the private market. The attempt of the Citizen's
Charter was to persuade the public services to behave like departments
when something goes wrong and to redress the complaint with satisfactory
methods.

557. The answer to the question is, you are
happy to wave goodbye to equity in achieving consumer responses?
Michael Jacobs was telling us that equity essentially is at the
heart of what the public service is. In order to make it consumer
responsive you are quite happy to wave goodbye to what essentially
is an unpinning concept.
(Dr Pirie) I do see the consumer gaining choice in
the system and having people respond to their demands in any way
conceptually, as long as people have equal rights to those things.

Mr Prentice

558. That is the point, is it not? Michael Jacobs
started off by telling us about non-exclusion, that state provision
was universal, and we derived these rights from our citizenship,
but with the consumer model you get what you pay for, and if you
cannot afford it you do not get it.
(Dr Pirie) I was referring to the things paid for
by taxation, public services. I am not talking about people buying
health and education in the private market, I am talking about
restructuring the state services so they are driven from the bottom,
as if people were consumers rather than citizens participating
in them.

559. Can I then ask about this boundary between
the public and the private sector and how far the Adam Smith Institute
would push it?
(Dr Pirie) The boundary between public and private?